With so much emphasis on how one airline is killing AA due to profit sharing - here is some balance to that story line
http://www.inc.com/magazine/19961101/1864.html
http://www.inc.com/magazine/19961101/1864.html
Problems with Profit Sharing
- Thread starter jcw
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I agree 100% with this article. I work for a company that has a profit sharing plan. This year we got $0.00 despite us actually meeting Wall Street's profit projections. The reason was we didn't meet internal corporate profit targets, which were unrealistic given the market conditions. Yet, many of my direct reports busted their butts to meet their personal goals but still got nothing this year because some large aggregate figure, once it rolled up to "corporate", didn't meet a target they didn't understand in the first place.
I would ALWAYS take additional hourly or annual pay over profit sharing potential. You'll be better off in the long run.
I would ALWAYS take additional hourly or annual pay over profit sharing potential. You'll be better off in the long run.
jimntx
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Good article. Agree with it.
Before anyone comes here and posts that the author of the article is obviously a Communist and an Arab terrorist for even suggesting that PS might not be the way to go...
If you don't know who Jack Stack is, click on this link. http://wikipedia.org/wiki/Jack_Stack He's a rather heavy hitter in the corporate world.
Before anyone comes here and posts that the author of the article is obviously a Communist and an Arab terrorist for even suggesting that PS might not be the way to go...
If you don't know who Jack Stack is, click on this link. http://wikipedia.org/wiki/Jack_Stack He's a rather heavy hitter in the corporate world.
Black Magic
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The sad folks that feel profit sharing is bad for some reason think that the new AA is going to operate at a loss or just break even in the coming years so there will be no profits. Haha bunch of clueless peons.
WorldTraveler
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the bottom line is simply what system will deliver the greatest benefit to employees.
I can fully appreciate that many don't to touch profit sharing and take home a fixed paycheck.
I can absolutely assure you that AA employees will be walking away from total compensation compared to their peers not just at DL but also elsewhere in the airline industry who have profit sharing and are willing to align their goals with those of the company.
likewise, it has repeatedly been proven that employees who do not have a vested financial interest in their company's performance will not put deliver what employees who have to deliver to get paid will do.
this will clearly be an issue for follow up but I can absolutely assure you that the profit sharing model will not be shown to be a failure.
I can fully appreciate that many don't to touch profit sharing and take home a fixed paycheck.
I can absolutely assure you that AA employees will be walking away from total compensation compared to their peers not just at DL but also elsewhere in the airline industry who have profit sharing and are willing to align their goals with those of the company.
likewise, it has repeatedly been proven that employees who do not have a vested financial interest in their company's performance will not put deliver what employees who have to deliver to get paid will do.
this will clearly be an issue for follow up but I can absolutely assure you that the profit sharing model will not be shown to be a failure.
I think the author of the article made some good points 14 years ago when it was written. And obviously, airlines with represented employees can not have true "bonus" programs for those represented employees, so profit sharing is the next best alternative.
At Southwest, the employees have long enjoyed profit sharing and, thanks to the myriad concessions endured by the pre-deregulation legacy network airline employees, the Southwest workgroups now make more fixed compensation than their legacy counterparts. Many of the WN employees are stockholders - arguably a superior method of sharing in their employer's impressive financial results. No, you shouldn't put all of your eggs in your employer's stock, but there's nothing wrong with allocating a portion of your investments in stock of your employer.
At AA, the late 1990s saw some impressive profit sharing payouts of about $250 million to $350 million a year for a few years. Then came the lost decade following September 11, 2001. Concessions followed by small increases followed by more concessions. And during bankruptcy, the evil bastard management offered an industry-standard profit-sharing program (and some stock). Many employees sold their stock the second they could, and missed out on a lot of gain, as AAL was the NASDAQ top performer in 2014.
Many employees also downplayed the profit-sharing, cheering as their unions traded it away for modest percentage increases. Now, AA is poised to earn very impressive profits thanks to wage concessions, pricing power brought on by consolidation and now, substantially reduced fuel prices. And whaddayouknow - new evil bastard management doesn't think the little people deserve profit sharing, and he's throwing a few bills your way to convince you that you'll be better off without profit sharing.
Barring another huge calamity, the stars might just be aligned for a very profitable decade, and management's overall take will make Arpey's PUP/PSP payouts look like the work of amateurs. I don't agree with Owens on very many things, nor do I agree with the DL cheerleader, but on this one, I think AA's employees will be on the outside looking in. Hell, the pilots have already been whining about the lack of profit-sharing Parker's combined CBA proposal, and they're the ones who traded it away (not just for themselves, but for everyone, thanks to the me-too provisions). Many FAs have also complained about the absence of profit-sharing, including APFA leadership.
Real unions would have thanked Horton for the profit-sharing and then negotiated raises on top of the 15% first dollar profit-sharing. Real unions would have told Parker that a combined CBA required some more raises on top of the 15% first dollar profit-sharing.
But true to form, AA's unions talk a good game and then turn around and capitulate. Parker doesn't think workers deserve profit-sharing. Wonder why he thinks management deserves profit-sharing?
At Southwest, the employees have long enjoyed profit sharing and, thanks to the myriad concessions endured by the pre-deregulation legacy network airline employees, the Southwest workgroups now make more fixed compensation than their legacy counterparts. Many of the WN employees are stockholders - arguably a superior method of sharing in their employer's impressive financial results. No, you shouldn't put all of your eggs in your employer's stock, but there's nothing wrong with allocating a portion of your investments in stock of your employer.
At AA, the late 1990s saw some impressive profit sharing payouts of about $250 million to $350 million a year for a few years. Then came the lost decade following September 11, 2001. Concessions followed by small increases followed by more concessions. And during bankruptcy, the evil bastard management offered an industry-standard profit-sharing program (and some stock). Many employees sold their stock the second they could, and missed out on a lot of gain, as AAL was the NASDAQ top performer in 2014.
Many employees also downplayed the profit-sharing, cheering as their unions traded it away for modest percentage increases. Now, AA is poised to earn very impressive profits thanks to wage concessions, pricing power brought on by consolidation and now, substantially reduced fuel prices. And whaddayouknow - new evil bastard management doesn't think the little people deserve profit sharing, and he's throwing a few bills your way to convince you that you'll be better off without profit sharing.
Barring another huge calamity, the stars might just be aligned for a very profitable decade, and management's overall take will make Arpey's PUP/PSP payouts look like the work of amateurs. I don't agree with Owens on very many things, nor do I agree with the DL cheerleader, but on this one, I think AA's employees will be on the outside looking in. Hell, the pilots have already been whining about the lack of profit-sharing Parker's combined CBA proposal, and they're the ones who traded it away (not just for themselves, but for everyone, thanks to the me-too provisions). Many FAs have also complained about the absence of profit-sharing, including APFA leadership.
Real unions would have thanked Horton for the profit-sharing and then negotiated raises on top of the 15% first dollar profit-sharing. Real unions would have told Parker that a combined CBA required some more raises on top of the 15% first dollar profit-sharing.
But true to form, AA's unions talk a good game and then turn around and capitulate. Parker doesn't think workers deserve profit-sharing. Wonder why he thinks management deserves profit-sharing?
Last year was the first time we did not meet our targets and did not qualify for our bonus, I went to work the next day doing my job to the best of my ability, I do my job as best as I can because there is a paycheck every week deposited in my account, not because there may or may not be an extra check at the end of the year...
The basic issue is if profit sharing is the best compensation model as one cheerleader promotes why don't 90% of the companies in America pay profit sharing - to go further if employee profit sharing is the magic one says - ESOP's are the natural extension - why doesn't everyone do an ESOP
The point is they don't - not that many companies pay profit sharing and even fewer are ESOP's
DL has chosen a pay methodology - it does not mean it's the best in the world - if an AA employee can make more than a DL employee without profit sharing - then profit sharing can't be the best answer - just because a company does not mean an employee is not benefiting from the profits the company generates - one forgets without profits you end up in bankrupcy with lost jobs and lost wages
At the end of the day - profit sharing is no magic pay methodology as one would make you believe - there are many benefits employees enjoy from a profitable company and it doesn't just come down to ps checks
The point is they don't - not that many companies pay profit sharing and even fewer are ESOP's
DL has chosen a pay methodology - it does not mean it's the best in the world - if an AA employee can make more than a DL employee without profit sharing - then profit sharing can't be the best answer - just because a company does not mean an employee is not benefiting from the profits the company generates - one forgets without profits you end up in bankrupcy with lost jobs and lost wages
At the end of the day - profit sharing is no magic pay methodology as one would make you believe - there are many benefits employees enjoy from a profitable company and it doesn't just come down to ps checks
WorldTraveler
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the basic question is to ask "do you or any other employee have ANY control over the company's profitability?"
and if you don't, then no you don't deserve profit sharing. and the company doesn't deserve to get anything more out of you than for you to show up for work.
Because absent some financial incentive to do your very best, all the company will get from many people is just for people to show up and have no incentive to push thru the difficulties or solve problems that aren't just black and white - or which black and white would say can be passed on to someone else's or wait for some other time.
Profit-motivated employees have the incentive to do what is necessary to make the company win. That is why virtually ALL mgmt. employees at ALL companies pay incentive pay and have programs that reward people for doing more than just show up for work but to be creative and dedicated to the company's success.
You either agree with Parker that there is nothing you can do to impact the company's success or you don't.
If you see yourself as merely a cog in a huge operation over which you can do more than your little function when you are told to do it and you can't influence or overcome the successes or failures of any other part of the machine, then you don't deserve profit sharing.
If you see yourself as a creative and intelligent being that is capable of influencing the world by doing more than just opening the Coke can and pouring it when you are told, dropping the bags when you are told, or adding oil when you are told, then you deserve profit sharing.
To be told that you can't influence the outcome of the company reduces you to nothing more than more physically capable human versions of the beasts of burden that marked the earliest phases of the industrial revolution.
To be told that you are capable of moving the outcome of the company and deserve to be compensated for it is the most positive and uplifting compliment you can be given as a worker.
and if you don't, then no you don't deserve profit sharing. and the company doesn't deserve to get anything more out of you than for you to show up for work.
Because absent some financial incentive to do your very best, all the company will get from many people is just for people to show up and have no incentive to push thru the difficulties or solve problems that aren't just black and white - or which black and white would say can be passed on to someone else's or wait for some other time.
Profit-motivated employees have the incentive to do what is necessary to make the company win. That is why virtually ALL mgmt. employees at ALL companies pay incentive pay and have programs that reward people for doing more than just show up for work but to be creative and dedicated to the company's success.
You either agree with Parker that there is nothing you can do to impact the company's success or you don't.
If you see yourself as merely a cog in a huge operation over which you can do more than your little function when you are told to do it and you can't influence or overcome the successes or failures of any other part of the machine, then you don't deserve profit sharing.
If you see yourself as a creative and intelligent being that is capable of influencing the world by doing more than just opening the Coke can and pouring it when you are told, dropping the bags when you are told, or adding oil when you are told, then you deserve profit sharing.
To be told that you can't influence the outcome of the company reduces you to nothing more than more physically capable human versions of the beasts of burden that marked the earliest phases of the industrial revolution.
To be told that you are capable of moving the outcome of the company and deserve to be compensated for it is the most positive and uplifting compliment you can be given as a worker.
This has nothing to do with parker - this has to do with a compensation approach - are you now suggesting if you work for a company that does not have profit sharing you are not profit oriented - once again profit sharing is a very small percentage of pay methodology used at companies in the US - which you can't seem to understand - once again if it so such the great way to pay employees why doesn't every company in America pay that way
Black Magic
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Just because most American companies do not use profit sharing in there compensation packages does not mean that is the best way to do it. Pay is pay period! And mark my words both the employees total compensation packages at SWA and DL will be higher than those for the AA employees. That's how Doug has always done it..jcw said:
WeAAsles
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What the cheerleader fails to mention is that Delta went into BK in 2005 and slashed labor costs far below AA even after the 03 concessions. They emerged from BK in 2007 with those lower labor costs intact. Those higher wages and benefits for AA employees lasted until AA finally went into BK in 2012. That means for 7 years employees at AA were receiving better pay and benefits than their counterparts at Delta.
I would like to know when Delta's PS formula if ever paid out more by PERCENTAGES to the total combined workforce employed directly between the two airlines? Perhaps at this moment finally for some workgroups it does? But I doubt in total now that the FA's have a contract that actually is true in total value compensation for the collective. Between the two pilot groups Delta pilots may still have the advantage (Depending if profits continue to be strong for the life of contracts) But I bet that currently pay and benefits are pretty comparable.
Another item between the stories of Delta and AA is timing and debt factor. Since AA only just emerged and merged they currently carry 17 Billion in debt on the books while Delta is down to 11 Billion. Delta has had a 7 year advantage against AA to be able to pay down debt and they've done an admirable job in that area and now their employees can reap 'some" of those benefits in PS. AA has only just begun the process and will have to have catchup time. It would be irresponsible to the debt holders for AA not to do so at this moment.
As an employee what WT doesn't understand is that I want my company to shore up it's foundation and pay down it's huge debt load. If I want to gamble I have flight benefits and I can always fly to Vegas and spin the roulette wheel. If "some" employees at Delta make more than I do this year or for a few years more, well congratulations then.
I would like to know when Delta's PS formula if ever paid out more by PERCENTAGES to the total combined workforce employed directly between the two airlines? Perhaps at this moment finally for some workgroups it does? But I doubt in total now that the FA's have a contract that actually is true in total value compensation for the collective. Between the two pilot groups Delta pilots may still have the advantage (Depending if profits continue to be strong for the life of contracts) But I bet that currently pay and benefits are pretty comparable.
Another item between the stories of Delta and AA is timing and debt factor. Since AA only just emerged and merged they currently carry 17 Billion in debt on the books while Delta is down to 11 Billion. Delta has had a 7 year advantage against AA to be able to pay down debt and they've done an admirable job in that area and now their employees can reap 'some" of those benefits in PS. AA has only just begun the process and will have to have catchup time. It would be irresponsible to the debt holders for AA not to do so at this moment.
As an employee what WT doesn't understand is that I want my company to shore up it's foundation and pay down it's huge debt load. If I want to gamble I have flight benefits and I can always fly to Vegas and spin the roulette wheel. If "some" employees at Delta make more than I do this year or for a few years more, well congratulations then.
WorldTraveler
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except unions can't negotiate retroactively - or haven't succeeded at doing it in the airline industry.
DL employees also kept a far higher percentage of the their salaries and benefits intact after AA did its out of court restructuring in 2003 and UA and US filed for BK before DL.
DL also did start to restore pay and benefits much sooner after UA and US.
You are right that AA benefitted from a generally stronger balance sheet during the 2000s that allowed them to take on debt to continue to fund their operations - and they could have continued to do the same thing even in 2011 instead of filing for BK.
AA didn't file for BK because it got concessions early enough in 2003 and could have continued to operate with them except AA didn't reduce staffing enough and its bloated labor costs relative to DL and UA were due almost entirely due to the number of employees and not the amount each employee made.
the problem for AA today is exactly the same... they have too many employees relative to the size of their network and revenue compared to other airlines.
AA is being forced to increase INDIVIDUAL pay without performing the cuts to its network and headcount that other carriers have done.
AA will be in exactly the same position as it was post 2003.
the whole reason why all of these competitive incursions matter that generate so much discussion is because AA is not producing revenues comparable to DL and UA esp. in int'l markets where the 3 network carriers are more insulated from low fare competition which is what AA faces to a greater degree in the most profitable parts of its network than either DL or UA face.
IT may be true that AA employees held onto their reduced 2003 salaries while other legacy carrier employees took cuts.
and AA is indeed restoring more pay faster than the other legacies did coming out of BK.
but AA has not dealt with the same structural problem of overstaffing and poor revenue production because of trying to keep too many employees on the payroll
and with that overstaffing, AA will be more limited in hiring new employees such as DL is doing which is precisely the strategy the LCCs have used to keep their costs down for the long term.
AA has an advantage with no fuel hedge losses in 2015 that buys them a little bit of breathing room - but AA is still not generating revenue on par with its peers. Given that a 1% difference in RASM among the big 3 is equal to hundreds of millions of dollars, it takes very little revenue advantage to offset some else's cost advantage.
and then AA will be in exactly the same place it was in post 2003 - overstaffed and generating below average revenues... which makes AA employee gains unsustainable - no matter what contracts say.
thank you for engaging in a healthy and respectful discussion as we together discuss the industry from our perspective.
DL employees also kept a far higher percentage of the their salaries and benefits intact after AA did its out of court restructuring in 2003 and UA and US filed for BK before DL.
DL also did start to restore pay and benefits much sooner after UA and US.
You are right that AA benefitted from a generally stronger balance sheet during the 2000s that allowed them to take on debt to continue to fund their operations - and they could have continued to do the same thing even in 2011 instead of filing for BK.
AA didn't file for BK because it got concessions early enough in 2003 and could have continued to operate with them except AA didn't reduce staffing enough and its bloated labor costs relative to DL and UA were due almost entirely due to the number of employees and not the amount each employee made.
the problem for AA today is exactly the same... they have too many employees relative to the size of their network and revenue compared to other airlines.
AA is being forced to increase INDIVIDUAL pay without performing the cuts to its network and headcount that other carriers have done.
AA will be in exactly the same position as it was post 2003.
the whole reason why all of these competitive incursions matter that generate so much discussion is because AA is not producing revenues comparable to DL and UA esp. in int'l markets where the 3 network carriers are more insulated from low fare competition which is what AA faces to a greater degree in the most profitable parts of its network than either DL or UA face.
IT may be true that AA employees held onto their reduced 2003 salaries while other legacy carrier employees took cuts.
and AA is indeed restoring more pay faster than the other legacies did coming out of BK.
but AA has not dealt with the same structural problem of overstaffing and poor revenue production because of trying to keep too many employees on the payroll
and with that overstaffing, AA will be more limited in hiring new employees such as DL is doing which is precisely the strategy the LCCs have used to keep their costs down for the long term.
AA has an advantage with no fuel hedge losses in 2015 that buys them a little bit of breathing room - but AA is still not generating revenue on par with its peers. Given that a 1% difference in RASM among the big 3 is equal to hundreds of millions of dollars, it takes very little revenue advantage to offset some else's cost advantage.
and then AA will be in exactly the same place it was in post 2003 - overstaffed and generating below average revenues... which makes AA employee gains unsustainable - no matter what contracts say.
thank you for engaging in a healthy and respectful discussion as we together discuss the industry from our perspective.
